Expanding Boating Memberships And Product Launches Will Deliver Lasting Success

Key Takeaways

• Expansion of Freedom Boat Club and Mercury's growth can drive revenue and earnings through increased customer base and market share.
  
• Structural cost reductions and strategic cash flow management enhance profitability and support future investments or share repurchases.
  
• Macroeconomic and policy uncertainties may harm Brunswick's revenue, earnings, and financial outlook by increasing costs and reducing consumer and retail sales.

Catalysts

Designs, manufactures, and markets recreation products in the United States, Europe, the Asia-Pacific, Canada, and internationally.

• The expansion of Freedom Boat Club globally and steady growth in membership sales may drive future revenue increases by expanding the company's customer base and recurring income streams.
  
• Mercury's outboard engine lineup continues to capture market share, suggesting potential revenue growth and improved earnings driven by an anticipated strong performance in sales to U.S. boat OEMs.
  
• The company has significant ongoing structural cost reduction measures, which may enhance net margins and earnings, improving overall profitability even amidst challenging macroeconomic conditions.
  
• Brunswick's strategic pipeline management and strong initiatives in inventory reduction are leading to substantial free cash flow, which can support future share repurchases or capital investments to drive earnings growth.
  
• The continuous launch and market acceptance of new products by Navico Group presents an opportunity for increasing future revenues and earnings, as these innovations capture consumer interest and demand.

Brunswick Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Brunswick's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.0% today to 7.8% in 3 years time.
• Analysts expect earnings to reach $446.1 million (and earnings per share of $7.13) by about May 2028, up from $101.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $581.8 million in earnings, and the most bearish expecting $291.7 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 10.0x on those 2028 earnings, down from 29.7x today. This future PE is lower than the current PE for the US Leisure industry at 17.9x.
• Analysts expect the number of shares outstanding to decline by 2.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.49%, as per the Simply Wall St company report.

Brunswick Future Earnings Per Share Growth

Risks

• The uncertain tariff environment and policy confusion present a significant risk, potentially leading to increased costs of $100 million to $125 million, which could adversely impact net margins and earnings.
  
• Weakness in entry-level products and potential streamlining of these offerings may result in lost revenue, primarily affecting the lower-margin segment and impacting overall revenue growth.
  
• The macroeconomic backdrop, including declining consumer sentiment and interest rate uncertainties, could lead to cautious consumer spending and reduced retail sales, negatively influencing revenue and profitability.
  
• There is significant uncertainty in the 2025 performance and guidance due to the macroeconomic environment, trade policy, foreign exchange fluctuations, and interest rates, which can impact revenue, earnings, and financial outlook.
  
• Volume pressure from trade policy and macroeconomic uncertainties could lead to reduced production and lower absorption rates, affecting net sales, decreasing adjusted operating earnings, and ultimately impacting profitability.

Valuation

• The analysts have a consensus price target of $59.831 for Brunswick based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $88.29, and the most bearish reporting a price target of just $42.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $5.7 billion, earnings will come to $446.1 million, and it would be trading on a PE ratio of 10.0x, assuming you use a discount rate of 7.5%.
• Given the current share price of $45.66, the analyst price target of $59.83 is 23.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.